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Economist expecting positive growth figures from CSO

Updated / Friday, 15 Sep 2017 11:18

Economist Jim Power tells Adam Maguire the Government has little fiscal space ahead of Budget 2018

The Central Statistics Office publishes its latest National Quarterly Accounts this morning, which tells us how the economy performed in the second quarter of the year. It will be the last piece of major economic data before the Budget is announced next month - and will give us a better idea of how the economy is managing in the context of Brexit.

The headline figures from the CSO will be around GDP and GNP, but economist Jim Power says that anyone looking to get a feel for what is going on in the economy needs to look beyond them. "I think we've discovered over the last couple of years that focusing in on growth in Gross Domestic Product and Gross National Product is a waste of time, because if you get one soft transaction with IP, aircraft leasing or whatever it creates huge distortions," he said. "If you look at the breakdown of the growth numbers it tells you a lot more."

Mr Power said he was expecting those figures to show a continued steady recovery in consumer spending and the construction sector, though he says the data is not there to make a prediction on business investment.
He also expects to see indications that the export sector is performing well - despite the weakness in sterling.
"We have exports of goods up to the end of June and they show that despite the weakness of sterling, exports to the UK were up 14.1% in the first six months of the year," he said. "There's something strange going on here, it appears at this stage that in terms of the export performance, sterling is having minimal impact at this stage."

Part of that could be due to the fact that Irish firms are cutting prices in order to maintain market share in the UK, but he says that as time goes on that weakness will begin to really bite at the bottom line. Exporters may be somewhat relieved to have seen sterling strengthen in the past few days after the Bank of England signalling its intent to raise interest rates, but Mr Power says that they should not read too much into this - and the expectation should be for weak sterling for the foreseeable future.

That aside, though, the economist is expecting today's CSO figures to paint a broadly positive picture about the Irish economy - so far this year at least. "Generally what we're likely to see is a continuation of steady growth in the economy, which sets a reasonable backdrop to the Budget that's going to be presented in a few weeks," he said. With just weeks to go until Budget day it is clear that there are a number of areas the Government could spend money on, but relatively little 'fiscal space' available to match that demand.

Mr Power says that the money is simply not there to allow the Government to do something dramatic, and people should not get their hopes up of what's to come in mid-October. "Anybody who expects to wake up on October 11th with a fundamentally different economic scenario will be sadly disappointed," he said. "You're talking about a budget package of around €1.7 billion, €1.2 billion of that is already pre-empted through public sector pay increases, through measures that were introduced last year and the feed through of those. So really we're looking at €500m to deal with issues such as reducing the burden on middle-income earners."

He says that that is not a lot of money when split between a large number of tax payers, even if a significant piece of it was dedicated to personal tax cuts. "The problem with the Irish tax system, fundamentally, is that once you go over €33,800 you go into the top marginal rate of tax," he said. "But if you increase that by €1,000, which wouldn't have a huge impact on people's take home income, it will cost around €178m to do that. So the scope to significantly change the personal tax burden is very, very limited - and of course on top of that there is massive pressure coming through on all types of expenditure, particularly on the health area."

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